Four Things Small Business Owners Should Do to Build Their Credit Profile

According to the SBA, small business owners, on average, spend $10,000 in startup capital. And where exactly do business owners procure this money? Typically, external sources like credit cards, bank loans, and lines of credit.

Here’s the catch: small business owners that want access to external funding sources need to demonstrate that they have good credit. While some might find this obstacle to be unfair or unnecessary, there’s a very good reason for it; 82% of businesses reportedly fail as a result of issues with cash flow. Lenders are simply looking to protect their investments, and reviewing credit history can help them determine a potential lendee’s risk for defaulting on payment.

You know that at some point you will likely need additional funding for your business, which means your business needs a credit profile separate from your personal one. Before you do anything else, the SBA recommends that small business owners check with Dun & Bradstreet to see if they have a business credit file.

Once your business is confirmed as a separate entity, it’s time to start working on building your credit profile.

Watch Your Credit Score

Keeping a close eye on your credit score is something you should do for both personal and business. You can request your personal credit score from one of the three major credit bureaus: Equifax, Experian, or TransUnion. For your business credit report, turn to Credit Signal.

This way, you can stay on top of any fluctuations, determine what the cause of those changes are (so you can avoid them in the future), and monitor for issues with identity theft, fraud, or report inaccuracies.

Build a Credit History for Your Business

In the future, you may work with others who insist on seeing your business’s credit score. For example, if you want to partner with a Fortune 500 company, they may require access to your score before signing any official contracts. You may also encounter suppliers who determine your rate or frequency of payment based on your business credit score. So, you need to start working on this now.

Here are some ways you can start building a credit history for your business:

Open a checking and/or savings account specifically for business cash flow.

Open utility, phone, and other monthly service or rental accounts under your business’s name.

Once you have opened these channels for business cash flow, be sure to always pay your balances in full and on time.

Get Savvy About How You Pay Expenses

Whether or not you’ve been able to obtain a loan or some other form of financing, it’s best to keep your business expenses on credit cards. This means that the smallest purchases for your business (like office supplies and snacks for your team) belong on your credit card as do major ones (like company software and hardware).

Now, although you could add the cost of ongoing services to your credit cards, it may be a smarter move to open lines of credit with suppliers. Just remember to ask the vendors or suppliers behind these services to report your spending activity to the credit-tracking bureaus so you can reap the benefits of having additional credit accounts open.

Choose to Lease Equipment over Purchasing

While you may be tempted to pay for all major purchases in whole, you may want to go the way of leasing or financing if it’s available to you. There’s a couple of reasons for this.

For one, equipment financing is really no different than when you take out a loan. If you can demonstrate that your business is up to the task of making payments in this manner, you’ll have solid proof that you’re capable of doing so with a loan in the future.

Secondly, equipment leasing might simply be a smarter choice, in general, if you plan on running your business with top-of-the-line technology. Rather than make large payments every few years when equipment becomes obsolete or too costly to maintain anymore, a lease frees you from that obligation and ensures that you can always level up for the latest and greatest.

At the end of the day, this is about creating a positive profile for your business, so don’t rush it. You can run lean and mean for a little while as you work on establishing credit for your business. Then, when your credit is in good shape, and you are feeling good about your ability to take on some debt, you can start applying for loans.

Ramon Ray

Ramon is a small business evangelist at Infusionsoft, publisher of Smart Hustle Magazine, and blogs about technology and small business at smallbiztechnology.com. He is passionate about helping small business entrepreneurs grow their businesses. Ramon is a bestselling author, journalist and freelance writer, and a frequent event producer, speaker and host. Ramon’s third book is the Amazon.com bestseller, “Facebook Guide to Small Business Marketing.” Ramon has shared the stage with Seth Godin, Daymond John, Guy Kawasaki, Simon Sinek, JJ Ramberg, Peter Shankman and other celebrity entrepreneurs. He interviewed President Obama in the President's first live Google Hangout.